Beyond singularity and multipolarity: Functional fragmentation in the international monetary system

Hanin Khawaja

Japanese Economy, 2025, vol. 51, issue 1-2, 105-132

Abstract: The international monetary system (IMS) has long been interpreted through the lens of singularity, where global stability hinges on a single dominant currency fulfilling all core monetary functions—store of value, medium of exchange, and unit of account. This paper challenges that paradigm by introducing the concept of functional fragmentation. The IMS is evolving toward different currencies increasingly specializing in specific roles, without any single issuer monopolizing the system. The transformation draws on wholesale central bank digital currencies (wCBDCs) and distributed ledger technologies (DLTs), but also reflects deliberate institutional choices shaped by geopolitical tensions and the erosion of trust in dollar-centric infrastructure. The U.S. dollar is likely to maintain its primacy in global reserves, but new platforms are enabling regional currencies to gain ground in payments and settlement. First, emerging markets are building wCBDC-based networks designed to bypass traditional correspondent banking. Second, the European Union is advancing interoperability and financial infrastructure resilience to safeguard the euro’s regional role. Third, the USA and the UK, slower to adopt CBDCs, are leveraging regulatory frameworks around stablecoins to reinforce dollar dominance through fintech intermediaries. The implications for global liquidity, reserve strategies, and financial stability are profound, requiring renewed attention to institutional coordination and systemic design in a modular, post-hegemonic IMS.

Date: 2025
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DOI: 10.1080/2329194X.2025.2545874

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